Natural gas producers avoided $700 million in royalties
January 23, 2006 3:31 PM
WASHINGTON (AP) - Natural gas producers reportedly took advantage
of inconsistent federal rules to avoid paying the U.S. government
about $700 million in royalties in 2005, and the Interior Department
has been asked to examine the matter for Congress.
After a three-month investigation, The New York Times wrote
Monday that a complicated set of federal regulations allowed energy
companies to provide the Interior Department and the Securities and
Exchange Commission different data when reporting the value of the
natural gas they sold.
To the SEC, the industry reported the full market price. But to
the Interior Department, it gave the much lower wellhead price,
which is the value of the gas before factoring in processing and
transportation costs, and profit margins. Royalties are set at
around 12 percent to 16 percent of the value of the energy sold.
If the royalty payments had been based on the price of natural
gas given to shareholders, the Times said, the U.S. government would
have collected an additional $700 million. The paper did not allege
that any laws were broken.
Industry executives denied any wrongdoing, saying that different
rules apply when calculating prices for different agencies. ''The
price of gas downstream is always going to be higher because you
have costs that have to be recouped for getting it to the
customer,'' a spokesman for Exxon Mobil Corp. was quoted as saying.
Still, Sen. Charles E. Schumer of New York said Monday that the
Interior Department should provide Congress with an explanation of
the matter within 30 days.
''I am deeply disturbed by the possibility that as American
families are paying significantly higher prices to heat their homes,
they may also be getting short-changed through underpaid royalties
by the same companies that have reaped extraordinary profits from
increased energy prices,'' Schumer said in a letter to the Interior
Department's Inspector General Earl E. Devaney.
The Interior Department did not immediately have any comment.
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